However, given that the prolonged weakness in the dry-bulk market is likely to pressure cash-flow generation, DryShips is expected to use a portion of its excess capital to restructure its liabilities (lower amortization payments; cure covenant breaches). Given this dynamic, it seems that capital remains tight at DryShips.
A strong balance sheet for this company
Diana Shipping Inc. (NYSE:DSX) reported a 1Q earnings loss of $0.04 per share, which was slightly bigger than the consensus estimate calling for a $0.03 loss per share. Diana Shipping Inc. (NYSE:DSX) generated operating income of $22 million, compared to the expected loss of $6 million, primarily driven by higher revenue.
The company for a long time has stayed disciplined on fleet growth. While many dry-bulk operators grapple with rates remaining at or near cash cost, Diana Shipping Inc. (NYSE:DSX) is able to utilize its strong balance sheet to make ship acquisitions and investments.
Keeping with the company strategy of selective fleet growth, Diana Shipping Inc. (NYSE:DSX) announced signing a new-build order for two Newcastle 208,500 dead-weight-tons (DWT) ships scheduled for delivery in 2016. The long period to delivery offers Diana Shipping Inc. (NYSE:DSX) lexibility, giving the market several years to work through the current oversupply dynamics.
Hence, the company continues to survive and grow in a relatively tough operating environment.
How is the containership market doing?
When investors discuss the dry-bulk market, the topic of the containership industry doesn’t go neglected. The balance between demand and supply in the containership vertical has been more sustainable relative to other marine-transport segments like dry bulk. That said, containership operators continue to struggle, as net-fleet expansion is running slightly above demand keeping ship rates and values near tough levels.
Diana Containerships is the first company of that sort that comes to mind, especially after talking about Diana Shipping in detail. For those who don’t know, Diana Containerships is a former wholly-owned subsidiary of Diana Shipping. That ownership has now been reduced to only 10%.
Diana Containerships reported adjusted 1Q earnings per share $0.03, which was above the consensus estimates of $0.02. Operating income came up short ~$1 million of consensus, with lower revenue driving the majority of the variance.
The containership company has fresh capital for growth prospects up its sleeves. Through a new debt facility (via Diana Shipping), planned equity issuance and containership sales, Diana Containerships intends on raising nearly $120 million of capital. As containership markets remain challenged, the company took the prudent strategy of selling the three ships previously chartered at premium rates instead of continuing to operate the ships at a loss. However, existing shareholders are likely to suffer as returns generated on the ships are below original expectations.
The company pays a super dividend yield of 22%. Given the expected influx of capital, the Street does not see a risk to the quarterly dividend arising over the near term. The company is expected to deploy this capital over the next several quarters on fleet acquisitions and with expectations for a modestly improving containership market, a quarterly dividend payout of ~$0.20 to $0.25 per share is sustainable through 2014.
Final word
The marine transportation industry remains far from a solid revival given the current gloominess in the global markets. On a company-specific note, I remain neutral on DryShips. The company is addressing its supply problems well, but its liquidity remains tight as it will restructure its liabilities.
Diana Shipping is a good company in which to invest in such conditions given its solid balance sheet and adequate fleet size. Diana Containerships is well capitalized and provides investors with a long-term potential for value creation. However, the company’s near-term outlook is more challenging, as the company faces significant fleet renewals in a weak spot-rate environment.
The article Have We Seen the Bottom of the Dry Bulk Industry? originally appeared on Fool.com.
Zain Abbas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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